NEW YORK, Feb. 28 /PRNewswire-FirstCall/ -- SCIENTIFIC GAMES CORPORATION today reported that fourth quarter 2005 revenues were $202.9 million, up 11 percent from $182.6 million in the fourth quarter of 2004. Net income was $10.4 million or $0.11 per diluted share, after reductions for $19.4 million of unusual charges, compared to net income of $4.4 million or $0.05 per diluted share in the fourth quarter of 2004. Excluding the unusual charges, non-GAAP adjusted fourth quarter net income would have been $25.1 million or $0.27 per diluted share, compared to previously reported non-GAAP adjusted net income of $22.5 million or $0.25 per diluted share for the fourth quarter of 2004.
EBITDA for the fourth quarter of 2005 (earnings before interest, taxes, depreciation and amortization - see the following EBITDA reconciliation) was $39.4 million compared to $51.2 million in the fourth quarter of 2004. Excluding the unusual charges, adjusted EBITDA for the fourth quarter of 2005 would have been $58.8 million, compared to adjusted EBITDA for the fourth quarter of 2004 of $54.3 million.
Full year 2005 revenues increased 8 percent to $781.7 million from the $725.5 million reported in 2004. Net income rose 15 percent to $75.3 million, or $0.81 per diluted share, after reductions for $26.8 million of unusual charges in the third and fourth quarters, compared to net income before preferred stock dividend of $65.7 million or $0.72 per diluted share in 2004. Excluding the unusual charges, 2005 non-GAAP adjusted net income would have been $95.3 million or $1.03 per diluted share.
EBITDA was $197.8 million in 2005, compared to $209.0 million in 2004. Excluding the unusual charges, adjusted EBITDA for the full year of 2005 would have been $224.6 million, compared to adjusted EBITDA for 2004 of $212.1 million.
Lorne Weil, Chairman and CEO, made the following comments. "Revenue performance in the fourth quarter was quite strong. Overall revenue increased 11%, and if Florida online revenues are eliminated from the 2004 numbers then the overall revenue growth was nearly 17%. More importantly, core lottery revenues increased by nearly 22%, from $125.6 million in 2004 to $153.1 million in 2005; here again, if the Florida online revenue is eliminated from the 2004 figure, then lottery revenue growth was 31%.
Business development since the end of the third quarter has been unusually active and we believe will further reinforce revenue momentum going forward. Our strategy of introducing instant ticket cooperative services in Germany took shape with the signing of the first two contracts in the German states of Lower Saxony and Hessen. Our video lottery system business unit continued to gain traction, receiving new system contracts in Delaware, New Mexico, and West Virginia. We were awarded multi-year instant ticket contracts in Vermont, Illinois, Ohio, Colorado and West Virginia, thereby maintaining an essentially perfect record at retaining existing instant ticket customers, and we were awarded a new online contract by the Maryland Lottery. Televisa Group, the largest media company in the Spanish speaking world, chose Scientific Games to be its technology partner as part of its strategy to build a presence in the gaming industry. And most recently, we were selected to be the primary instant ticket supplier to the New York Lottery.
Under normal operating circumstances the magnitude and composition of revenue in the fourth quarter would have been sufficient to generate net income of at least $0.27 per diluted share, but this was not a normal quarter from several points of view. During the quarter we recorded:
-- a non-cash charge of $12.4 million to discontinue our SERP program, an
action that will result in an earnings benefit of at least $2.0 million
annually in 2006 and beyond;
-- a non tax-deductible charge of $1.7 million in connection with the
earn-out on the Honsel acquisition (future earn-out payments will be
treated as additional purchase price rather than a charge to earnings);
-- unanticipated legal and related consulting and severance expenses of
$3.0 million in connection with non-recurring matters in North
Carolina, Chile, New Jersey and elsewhere;
-- Start-up expenses of approximately $1.0 million in connection with the
opening of our new instant ticket production facility in the UK;
losses of about $1.0 million due to the start up of new lottery
contracts in Catalonia;
-- write-offs of about $1.0 million in our pari-mutuel systems business,
primarily to withdraw from the market in Poland.
During the month of January we announced our agreement to acquire the online lottery assets of Essnet and our non-binding letter of intent for Global Draw. The acquisition of Essnet will significantly strengthen our position in the European and Australian lottery systems arena, as well as provide significant support to our instant ticket strategy in Germany; with seven German lotteries under contract, Essnet is the leader in the German lottery market. Global Draw would give us a major presence as a technology systems and services supplier to the British licensed betting shop market, thereby fulfilling a strategic objective we have had for some time. It will also provide us with central determination, server- based gaming systems capability with which to pursue the very rapidly growing government sponsored video gaming market in Europe."
Conference Call Details
Scientific Games Corporation invites you to join its conference call tomorrow at 8:30 a.m. Eastern Standard Time. To access the call live via webcast please visit http://www.scientificgames.com/ and click on the webcast link To access the call by telephone, please dial (800) 591-6945 (US & Canada) or (617) 614-4911 (International) fifteen minutes before the start of the call. The Conference ID# is 26839769. The call will be archived for replay on the company's website for 30 days under the "Investors" tab.
About Scientific Games
Scientific Games Corporation is the leading integrated supplier of instant tickets, systems and services to lotteries, and the leading supplier of wagering systems and services to pari-mutuel operators. It is also a licensed pari-mutuel gaming operator in Connecticut and the Netherlands and is a leading supplier of prepaid phone cards to telephone companies. Scientific Games' customers are in the United States and more than 60 other countries. For more information about Scientific Games, please visit our web site at http://www.scientificgames.com/ .
Forward-Looking Statements
In this press release we make "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as "may," "will," "estimate," "intend," "continue," "believe," "expect" or "anticipate," or the negatives thereof, variations thereon or similar terminology.
These forward-looking statements generally relate to plans and objectives for future operations and are based upon management's reasonable estimates of future results or trends. Although we believe that the plans and objectives reflected in or suggested by such forward-looking statements are reasonable, such plans or objectives may not be achieved.
Actual results may differ from projected results due, but not limited, to unforeseen developments, including developments relating to the following:
-- economic, competitive, demographic, business and other conditions in
our local and regional markets;
-- changes or developments in the laws, regulations or taxes in the gaming
and lottery industries;
-- actions taken or omitted to be taken by third parties, including
customers, suppliers, competitors, members and shareholders, as well as
legislative, regulatory, judicial and other governmental authorities;
-- changes in business strategy, capital improvements, development plans,
including those due to environmental remediation concerns, or changes
in personnel or their compensation, including federal, state and local
minimum wage requirements;
-- the availability and adequacy of our cash flow to satisfy our
obligations, including our debt service obligations and our need for
additional funds required to support capital improvements, development
and acquisitions;
-- an inability to renew or early termination of our contracts;
-- an inability to complete the Essnet or Global Draw acquisitions or to
engage in future acquisitions;
-- the loss of any license or permit, including the failure to obtain an
unconditional renewal of a required gaming license on a timely basis;
and
-- resolution of any pending or future litigation in a manner adverse to
us.
Actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.
Non-GAAP Disclosures
EBITDA, as included herein, represents operating income plus depreciation and amortization expenses. EBITDA is included in this document as it is a basis upon which we assess our financial performance, and it provides useful information regarding our ability to service our debt. EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operations, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles as measures of our profitability or liquidity. EBITDA as defined in this document may differ from similarly titled measures presented by other companies.
Adjusted EBITDA, non-GAAP adjusted net income and non-GAAP adjusted net income per diluted share are non-GAAP financial measures that are presented as supplemental disclosures and are reconciled to GAAP net income in financial schedules accompanying this release. In calculating the adjusted financial measures, the Company excludes certain expenses which it believes are unusual in nature, in order to facilitate an understanding of the Company's operating performance.
The Company's management uses these adjusted financial measures in conjunction with GAAP financial measures to monitor and evaluate its operating performance and to facilitate internal and external comparisons of the historical operating performance of the Company and its business units. The Company's management believes that these adjusted financial measures are useful to investors to provide them with disclosures of the Company's operating results on the same basis as that used by the Company's management. Additionally, the Company's management believes that these adjusted financial measures provide useful information to investors about the performance of the Company's overall business because such financial measures eliminate the effects of unusual charges that are not directly attributable to the Company's underlying operating performance. The Company's management also believes that because it has historically provided such non-GAAP financial measures in its earnings releases, continuing to do so provides consistency in its financial reporting and continuity to investors for comparability purposes. Accordingly, the Company's management believes that the presentation of the adjusted non- GAAP financial measures, when used in conjunction with GAAP financial measures, provides both management and investors with useful financial information that can be used in assessing the Company's financial condition and operating performance.
The adjusted financial measures should not be considered in isolation or as a substitute for net income or net income per diluted share prepared in accordance with GAAP. The adjusted financial measures as defined in this document may differ from similarly titled measures presented by other companies. The adjusted financial measures, as well as other information in this document should be read in conjunction with the Company's financial statements filed with the Securities and Exchange Commission.
Contact Information:
Scientific Games Corporation - Investor Relations - (212) 754-2233
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 2004 and 2005
(Unaudited, in thousands, except per share amounts)
Three Months Ended
December 31,
2004 2005
Operating revenues:
Services $149,145 166,781
Sales 33,464 36,098
182,609 202,879
Operating expenses (exclusive of depreciation
and amortization shown below):
Services 81,421 91,793
Sales 22,370 24,780
Amortization of service contract software 2,215 1,790
106,006 118,363
Total gross profit 76,603 84,516
Selling, general and administrative expenses 27,654 46,902
Depreciation and amortization 13,384 16,280
Operating income 35,565 21,334
Other deductions (income):
Interest expense 8,063 6,665
Debt restructuring charge 16,868 --
Equity in loss of joint venture 6,060 242
Other income (659) (184)
30,332 6,723
Income before income tax expense 5,233 14,611
Income tax expense 881 4,256
Net income available to common stockholders $4,352 10,355
Basic and diluted net income per share:
Basic net income available to common
stockholders $0.05 0.12
Diluted net income available to common
stockholders $0.05 0.11
Weighted average number of shares
used in per share calculations:
Basic shares 88,071 89,780
Diluted shares 91,463 92,867
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Months Ended December 31, 2004 and 2005
(Unaudited, in thousands, except per share amounts)
Twelve Months Ended
December 31,
2004 2005
Operating revenues:
Services $590,984 639,327
Sales 134,511 142,356
725,495 781,683
Operating expenses (exclusive of depreciation
and amortization shown below):
Services 318,989 351,430
Sales 92,231 100,621
Amortization of service contract software 5,799 7,007
417,019 459,058
Total gross profit 308,476 322,625
Selling, general and administrative expenses 105,274 131,844
Depreciation and amortization 55,478 59,787
Operating income 147,724 130,994
Other deductions (income):
Interest expense 30,952 26,548
Debt restructuring charge 16,868 478
Equity in loss of joint venture 6,060 1,713
Other income (748) (1,349)
53,132 27,390
Income before income tax expense 94,592 103,604
Income tax expense 28,850 28,285
Net income 65,742 75,319
Convertible preferred stock dividend 4,721 --
Net income available to common stockholders $61,021 75,319
Basic and diluted net income per share:
Basic net income available to common
stockholders $0.84 0.84
Diluted net income available to common
stockholders $0.72 0.81
Weighted average number of shares
used in per share calculations:
Basic shares 73,014 89,327
Diluted shares 90,710 92,484
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED BALANCE SHEET DATA
December 31, 2004 and 2005
(Unaudited, in thousands)
December 31, December 31,
2004 2005
Assets:
Cash and cash equivalents $66,120 38,942
Short-term investments ... 52,525 --
Other current assets ... 176,852 222,579
Property and equipment, net 271,426 359,251
Long-term assets 526,302 551,741
Total assets $1,093,225 1,172,513
Liabilities and Stockholders' Equity:
Current portion of long-term debt $4,370 6,055
Other current liabilities 138,872 135,307
Long-term debt, excluding current portion 606,508 574,680
Other long-term liabilities 42,911 69,638
Stockholders' equity 300,564 386,833
Total liabilities and stockholders'
equity: $1,093,225 1,172,513
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Three Months Ended December 31, 2004 and 2005
(Unaudited, in thousands)
Three Months Ended December 31, 2004
Venue Telecom-
Lottery Pari-Mutuel Management munications
Group Group Group Group Totals
Service revenues $117,545 17,451 14,149 -- 149,145
Sales revenues 8,102 1,292 -- 24,070 33,464
Total revenues 125,647 18,743 14,149 24,070 182,609
Cost of service 58,462 12,456 10,503 -- 81,421
Cost of sales 4,732 695 -- 16,943 22,370
Amortization of
service contract
software 826 1,389 -- -- 2,215
Total operating
expenses 64,020 14,540 10,503 16,943 106,006
Gross profit 61,627 4,203 3,646 7,127 76,603
Selling, general and
administrative
expenses 13,187 3,694 1,112 1,907 19,900
Depreciation and
amortization 9,472 2,215 430 958 13,075
Segment operating
income $38,968 (1,706) 2,104 4,262 43,628
Unallocated
corporate expense 8,063
Consolidated
operating income $35,565
Three Months Ended December 31, 2005
Venue Telecom-
Lottery Pari-Mutuel Management munications
Group Group Group Group Totals
Service revenues $135,784 16,433 14,564 -- 166,781
Sales revenues 17,292 4,152 -- 14,654 36,098
Total revenues 153,076 20,585 14,564 14,654 202,879
Cost of service 67,948 12,863 10,982 -- 91,793
Cost of sales 12,617 2,201 -- 9,962 24,780
Amortization of
service contract
software 1,351 439 -- -- 1,790
Total operating
expenses 81,916 15,503 10,982 9,962 118,363
Gross profit 71,160 5,082 3,582 4,692 84,516
Selling, general
and administrative
expenses 21,963 1,094 929 1,447 25,433
Depreciation and
amortization 12,479 2,169 499 813 15,960
Segment operating
income $36,718 1,819 2,154 2,432 43,123
Unallocated
corporate expense 21,789
Consolidated
operating income $21,334
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Twelve Months Ended December 31, 2004 and 2005
(Unaudited, in thousands)
Twelve Months Ended December 31, 2004
Venue Telecom-
Lottery Pari-Mutuel Management munications
Group Group Group Group Totals
Service revenues $451,056 78,397 61,531 -- 590,984
Sales revenues 62,506 4,140 -- 67,865 134,511
Total revenues 513,562 82,537 61,531 67,865 725,495
Cost of service 229,502 44,780 44,707 -- 318,989
Cost of sales 40,041 2,381 -- 49,809 92,231
Amortization of
service contract
software 3,338 2,461 -- -- 5,799
Total operating
expenses 272,881 49,622 44,707 49,809 417,019
Gross profit 240,681 32,915 16,824 18,056 308,476
Selling, general
and administrative
expenses 58,630 9,495 4,084 6,313 78,522
Depreciation and
amortization 38,470 10,808 1,951 3,305 54,534
Segment operating
income $143,581 12,612 10,789 8,438 175,420
Unallocated
corporate expense 27,696
Consolidated
operating income $147,724
Twelve Months Ended December 31, 2005
Venue Telecom-
Lottery Pari-Mutuel Management munications
Group Group Group Group Totals
Service revenues $506,930 71,545 60,852 -- 639,327
Sales revenues 75,430 10,313 -- 56,613 142,356
Total revenues 582,360 81,858 60,852 56,613 781,683
Cost of service 257,387 47,255 46,788 -- 351,430
Cost of sales 53,300 7,041 -- 40,280 100,621
Amortization of
service contract
software 4,778 2,229 -- -- 7,007
Total operating
expenses 315,465 56,525 46,788 40,280 459,058
Gross profit 266,895 25,333 14,064 16,333 322,625
Selling, general
and administrative
expenses 68,053 12,265 3,263 5,600 89,181
Depreciation and
amortization 43,438 9,654 1,960 3,556 58,608
Segment operating
income $155,404 3,414 8,841 7,177 174,836
Unallocated
corporate expense 43,842
Consolidated
operating income $130,994
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME BEFORE PREFERRED
STOCK DIVIDENDS TO ADJUSTED EBITDA
(Unaudited, in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2005 2004 2005
Net income available to
common stockholders $4,352 10,355 $65,742 75,319
Add: Income tax expense 881 4,256 28,850 28,285
Add: Depreciation and
amortization expense 15,599 18,070 61,277 66,794
Add: Interest expense 8,063 6,665 30,952 26,548
Add: Other expense 22,269 58 22,180 842
EBITDA $51,164 39,404 $209,001 197,788
Add: Unusual Racing charges 3,091 600 3,091 5,721
Add: Unusual Lottery Group
charges 6,474 8,682
Add: Unusual Corporate
charges -- 12,363 -- 12,363
Adjusted EBITDA $54,255 58,841 $212,092 224,554
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CALCULATION OF NON-GAAP ADJUSTED NET INCOME
(Unaudited, in thousands, except per share amounts)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2005 2005
Net income available to common stockholders $10,355 75,319
Add: Income tax expense 4,256 28,285
Add: Unusual Racing charges 600 5,721
Add: Unusual Lottery Group charges 6,474 8,682
Add: Unusual Corporate charges 12,363 12,363
Non-GAAP adjusted income before income
tax expense 34,048 130,370
Non-GAAP adjusted income tax expense 8,921 35,070
Non-GAAP adjusted net income available to common
stockholders $25,127 95,300
Diluted non-GAAP adjusted net income available to
common stockholders per share $0.27 1.03
Weighted average number of shares used in diluted
per share calculation 92,867 92,484
See "Non-GAAP Disclosures" -- for non-GAAP financial measures explanations.
First Call Analyst:
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